When a company purchases fixed assets—such as buildings, vehicles, machinery, or equipment—it is making a long-term investment rather than an expense that immediately affects its profits. These assets are important because they help the business operate and grow, but they also impact the company’s financial records in several ways.
Instead of simply deducting the full cost from profits like regular expenses, the asset is recorded on the company’s balance sheet under “non-current assets,” meaning it’s something the company will use for a long time. The business doesn’t count the entire cost as an expense right away. Instead, it spreads out the cost over multiple years through a process called depreciation (or amortization for intangible assets). This means that each year, a portion of the asset’s value is deducted as a business expense, lowering taxable income gradually rather than all at once.
Purchasing fixed assets can also affect cash flow. If a company pays for the asset upfront, its available cash decreases. If the asset is financed through a loan, the company takes on debt, which means future payments and interest costs. This purchase also influences how investors, lenders, and others view the business. Financial ratios, like how efficiently a company uses its assets or how much debt it carries, may change after buying an expensive asset.
Overall, buying fixed assets can be a smart move for long-term success, but businesses must manage their money carefully to ensure they can afford the purchase and track the value of the asset correctly on their financial records.
In the latest Budget announced on 22 May 2025, the Government has announced that from that day forward NEW assets from New Zealand and NEW or USED assets from overseas can have an immediate deduction of 20 per cent of the cost of the asset on top-of depreciation.
